ECONOMIC HISTORY
(Fozel and North)
Economic history, in the words of Hicks, is just the applied economics of earlier ages. Any discussion of Economic history is incomplete with out mentioning the works of Karl Marx and W.W. Rostow. Karl Marx is a house- hold word in many Nations and his book Das Kapital revolutionized the thinking of men and influenced working classes everywhere. Marx analysis is an unique materialistic interpretation of history. Marx’s applied Hegel’s dialectic method to economics. The core of the dialectic lies in the conception of the process by which change takes place. The conception embraces the celebrated triad of thesis, anti-thesis and synthesis. The dialectic pattern is best exemplified by Marx view of class struggle in capitalistic society as the mechanism through which a thesis and anti-thesis interact to form a synthesis in the form of communism. What generates the contradiction is the thesis, what represents the contradiction is the anti-thesis and the synthesis represents the negation of negation or the reconstruction of aspects of the thesis with aspects of the anti-thesis into a higher composite.
The gist of Marx’s arguments are:
The nature of individuals depends on their material conditions of production
The mode of production in material life determines the general character of the social, political and spiritual process of life.
At a certain stage of their development, the material forces of production in society come in conflict with the existing forces of production viz, with the property relations within which they had been at war before. From forms of development of the forces of production, those relations turn into fetters. Then comes the period of social revolution. The history of all societies has up to now been the history of class struggles. The burgeoise (capitalists) replaced the feudal nobility.
Capitalist industrial societies would create the conditions for their destruction because of inherent contradictions. Capitalists in their pursuit of profits introduce more and more labor saving machinery; thereby create vast army of unemployed unskilled labor. Increased competition among capitalists leads to concentration of capital and increasing of a labor. Workers receive subsistence wages, the rate of profits decline. There is shortage of demand for the supply of goods produced. The conditions of capitalist society become fetters to the productive forces of capitalism; there results a conflict between the Capitalists and the working classes. The fall of capitalism and the victory of the proletariat are equally inevitable.
Thus Marx suggested several stages in the evolution of societies:
1. Primitive Communism, 2. The ancient slave state, 3. Feudalism,
4. Socialism and finally 5. Communism.
In the early 60’s of last Century, W.W. Rostow wrote a book titled the Stages of Economic Growth (A non-Communist manifesto). He identifies all societies, in their economic dimensions as lying within one of five categories or stages of Growth. They are: 1. the traditional society 2. The Pre-conditions for Take-Off 3. The Take-Off 4. The drive to Maturity and 5. The Age of high mass consumption.
As against the above broad approaches to the study of the evolution of societies, the new economic history some times called ‘clio-metrics’ uses econometric techniques to the historical issues. Robert W.Fozel and Douglas C North made valuable contributions to new-history. They were awarded the Nobel Prize in 1993 for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.
Fozel’s researches centered round two themes. The first was to measure the impact of key scientific and technological innovations, key Governmental policies and important environmental and institutional changes on the course of economic growth. The second was to promote wider use of mathematical models and statistical methods of economics in studying the complex, long-term processes that were the focus of economic historians.
Fozel’s approach to Historical research is exemplified in his works, Rail Roads and American Growth, the Escape from Hunger and Premature death, 1700-2100 and others.
Douglas C North is another founder member of the new economic history, called clio-metrics. He made a comprehensive study of economic growth of U.S. (1790-1860), the gist of the argument is that the timing and pace of an economy’s development has been determined by: the success of its export sector and the characteristics of the export industry and the disposition of the income received from export sector.
North realized that a theory of economic history is needed. The existing Neo-Classical theory was concerned with the operation of markets and assumed the existence of the underlying condition needed for the efficient operation of markets. It had nothing to say about how markets evolved. The strong points in favour of Neo Classical economics are: its use of individual as the unit of analysis and its areas of analysis are competitive situations. Marxism was explicitly concerned with institutions, asked good questions, and had an explanation of long-run change but there were many flaws in the Marxian model. Making classes as a unit of analysis and failing to incorporate population change as a key source of change, were major short comings.
Douglas North’s initial effort to incorporate institutions into historical economic analysis resulted in two books (one with L. Davis) Institutional Change and American Economic Growth and other (with Robert Thomas) The Rise of Western World. In Structure and Change in Economic History, Douglas North abandoned the notion that institutions were efficient and attempted to explain why inefficient rules would tend to exist and be perpetuated. He stressed the need for a political economic framework to explore long-run institutional change and that led to the publication of Institutions, Institutional Change and Economic performance. He attempted to evolve a theory of institutional change.
The first step in the evolution of a theory was to separate institutions from organizations. The former are rules of the game, and the latter are players. In the world of scarcity and competition, the organizations are in competition to survive. That competition will lead them to try to modify the institutional framework to improve their competitive position. The direction of change of institutions, however, will reflect the perception of the actors. North tries to blend cognitive science with institutional approach to history in his recent book, understanding the process of Economic Change. When humans understand their environment as reflected in their beliefs and construct an institutional framework that enables them to implement their desired objectives, then there is consistency between the objectives of those players in a position to shape their destiny and the desired outcomes. North feels that such consistency is not automatic and further it is an evolving process over a long period. Because of human failure lack of consistency occurs.
The rise and fall of the Soviet Union between 1988 to 1991 is best explained by its process of change: its beliefs – institutions – organizations – policies – and finally outcomes. While admitting that he is no expert on Soviet Union, he gives highlights of the Soviet Union, drawing on the expertise of others.
Gorbachev introduced Perestroika (Reorganization) which gave enterprise directors greater autonomy. Glasnot or openness was introduced with the aim to undermine the power of the party leaders. The decline and destruction of the stable party structure has led to disorder. Government officials lost confidence in Soviet institutions. Soviet institutions were pulled apart by the Government officials. The catalysts of State collapse were the agents of State itself. Soviet institutions did not have adaptive efficiency.